BUYOUTS: LeTV Suspends, TCL Buys Back to Halt Share Slide
Bottom line: Measures like LeTV’s share suspension and TCL’s share buyback will have minimal impact on their stock ultimate declines during the ongoing sell-off, and in the former case will only add to LeTV’s image as a market manipulator.
It’s only Thursday, but already I’m looking forward to the weekend so I can take a break from writing daily about the pounding Chinese Internet and tech stocks are taking both at home and abroad. The number of Internet stocks getting pounded in China has just lost a major member, with word that online video superstar LeTV (Shenzhen: 300104) has joined a growing list of domestically traded companies that have been granted permission to suspend trading of their shares.
At the same time, a few of the other companies I write about are trying different tactics to support their shares, with electronics giant TCL (Shenzhen: 000100) expanding a share buyback program in one such move. Such buybacks usually total millions or perhaps tens of millions of dollars, and thus don’t seem very effective at a time when billions or even trillions of dollars worth of shares are being traded each day. But companies like TCL and LeTV are doing anything they can to try and support their tumbling stocks.
The alternative would be to simply sit back and let the market run its course, which is really what everyone should be doing to let their valuations return to more normal levels. But of course no one likes to sit by and watch their share price tumble so quickly, even though in most cases the same company executives were happy to do nothing as their stocks soared to unsustainably high levels during the earlier rally.
In a somewhat ironic twist, many US-listed China Internet and other high-tech stocks failed to enjoy similar gains during the Chinese rally that saw the main Shanghai composite index more than double over the past year before peaking in early June. Those companies did see a smaller rally as many received buyout offers, but now many are seeing their shares tumble in tandem with the China plunge.
Remedy in Share Suspension?
As one of the only China-listed tech companies that I regularly cover, LeTV is a great example of what’s happening in China. The company’s shares had risen more than 5-fold this year amid the broader rally, and also on big hopes for the company’s online video services that were challenging traditional broadcasters. But now the shares are down nearly 40 percent from their level in early June, though they’re still more than triple their level from the beginning of the year.
Perhaps the company felt the tripling level was still a fair reflection of its true value, which is why it requested and was granted a halt in its trading from the Chinese securities regulator. (Chinese article) The reason for the halt was officially due to some big investments the company was preparing to make in smart devices.
But citing its sliding shares as a reason for the halt request clearly wouldn’t be acceptable, forcing LeTV to use this kind of flimsy explanation. LeTV is hardly the first to request such a suspension, and reports say more than 1,300 companies have now gotten similar suspensions, freezing up $2.6 trillion in stock that accounts for 40 percent of China’s market value. (English article)
I don’t have too much respect for companies like LeTV when they resort to this kind of tactic, as it’s really just blatant market manipulation. The share buyback approach taken by TCL seems a bit more mature, even if it’s unlikely to have any effect.
TCL previously announced a 795 million yuan ($130 million) buyback program for its China-listed shares, and now the company has announced it has spent another HK$50 million ($6.4 million) to buy back shares of its 2 Hong Kong-listed units, TV maker TCL Multimedia (HKEx: 1070) and cellphone maker TCL Communications (HKEx: 2618). (Chinese article) Such an amount seems rather trivial for such a buyback, but at least it shows that TCL is trying to support not only its domestic shares but also its stock held by overseas investors.
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